The world’s economy will continue to slow down in the upcoming year, but owing to Asia’s largest economies, a recession is likely to be avoided.
According to the Organization for Economic Cooperation and Development’s most recent prediction, the global GDP would expand by 3.1% this year and by just 2.2% in 2023. (OECD).
The International Monetary Fund (IMF) stated last month that it anticipates the global economy to grow by 3.2% this year and 2.7% next year, which is more optimistic than the OECD, which does not foresee a recession.
According to a statement released by the OECD on Tuesday, the “fragile prospects” for the global economy directly result from Russia’s conflict with Ukraine, which has produced an energy crisis that has fueled inflation globally.
It said, “We expect growth to be restrained by persistent inflation, rising energy prices, sluggish real household income growth, declining confidence, and tighter financial conditions.” Growth can be considerably weaker than anticipated if energy costs increase more or the energy supply is disrupted.
According to the OECD, major Asian economies will be “highly dependent” on growth in the upcoming year, with the United States and Europe “decelerating considerably” and making up about three-quarters of the global GDP growth.
After Saudi Arabia, India is predicted to have the second-highest growth rate in the world in 2022 (6.6%), followed by 5.7% in 2023. The Chinese economy is expected to expand by 3.3% this year and 4.6% in 2023.
In contrast, only 1.8% and 0.5% growth are predicted for the US in 2022 and 2023. The 19 EU nations that utilize the euro are anticipated to have a sharp decrease in growth over the following two years, from 3.3% in 2022 to 0.5% in 2023.
According to OECD Secretary-General Matthias Cormann, the economies of Europe and the United States are expanding partly due to government spending on energy subsidies and initiatives to encourage investment, such as NextGeneration EU and the Inflation Reduction Act.
He noted that savings made by individuals and organizations during the early stages of the pandemic would also bolster spending.
The most significant approach to improve the current state of the world economy, according to Cormann, would be to end the conflict and secure fair peace for Ukraine.
The OECD anticipates inflation will continue above 9% this year in advanced economies. After that, it is expected to return to 6.6% in 2023, just above IMF projections.
Major central banks have been raising interest rates to keep price increases under control and aim for inflation near 2%. However, the effort is also raising economic risks by raising the cost of government, industry, and household debt payments.
Although higher interest rates are essential to control inflation, the OECD warned that they would make it more difficult for people and businesses to borrow money.
In addition, tighter global financial conditions may increase the danger of increased debt distress. “Low-income nations will remain particularly sensitive to high food and energy prices,” it was stated.
David Malpass, the president of the World Bank, recently told CNN that although the agency is “worried about a global recession in 2023,” the US economy is “a little better than other economies.”
